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QUESTION 7 Consider an industry with two products A and B. There are 100 consumers who value product A at vA=120 and product B at vB=280. The incumbent firm 1 produces both goods. Its marginal cost of production for good A is cA=80 and CB1=150 for good B. Suppose the incumbent firm 1 offers the two products as a bundle at a price p1. There is also a potential new entrant firm 2 who only produces good B at a marginal cost of cB2=80. Firm 2 charges a price p2 for good B. The firms compete in prices for the consumers. Which of the following statements is correct?

QUESTION 7 Consider an industry with two products A and B. There are 100 consumers who value product A at vA=120 and product B at vB=280. The incumbent firm 1 produces both goods. Its marginal cost of production for good A is cA=80 and CB1=150 for good B. Suppose the incumbent firm 1 offers the two products as a bundle at a price p1. There is also a potential new entrant firm 2 who only produces good B at a marginal cost of cB2=80. Firm 2 charges a price p2 for good B. The firms compete in prices for the consumers. Which of the following statements is correct?

Linear Algebra: A Modern Introduction
Linear Algebra: A Modern Introduction
4th Edition
ISBN:9781285463247
Author:David Poole
Publisher:David Poole
Chapter2: Systems Of Linear Equations
Section2.4: Applications
Problem 27EQ
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QUESTION 7 Consider an industry with two products A and B. There are 100 consumers who value product A at vA=120 and product B at vB=280. The incumbent firm 1 produces both goods. Its marginal cost of production for good A is cA=80 and CB1=150 for good B. Suppose the incumbent firm 1 offers the two products as a bundle at a price p1. There is also a potential new entrant firm 2 who only produces good B at a marginal cost of cB2=80. Firm 2 charges a price p2 for good B. The firms compete in prices for the consumers. Which of the following statements is correct? Firm 2 serves all consumers charging a price p2 = 110. Firm 1 serves all consumers charging a price p1 = 170. Firm 2 serves all consumers charging a price p2 = 60. Firm 1 serves all consumers charging a price p1 = 30. None of the above.
Transcribed Image Text:QUESTION 7 Consider an industry with two products A and B. There are 100 consumers who value product A at vA=120 and product B at vB=280. The incumbent firm 1 produces both goods. Its marginal cost of production for good A is cA=80 and CB1=150 for good B. Suppose the incumbent firm 1 offers the two products as a bundle at a price p1. There is also a potential new entrant firm 2 who only produces good B at a marginal cost of cB2=80. Firm 2 charges a price p2 for good B. The firms compete in prices for the consumers. Which of the following statements is correct? Firm 2 serves all consumers charging a price p2 = 110. Firm 1 serves all consumers charging a price p1 = 170. Firm 2 serves all consumers charging a price p2 = 60. Firm 1 serves all consumers charging a price p1 = 30. None of the above.
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